Creative feels the pain as Apple music plays on

Apple competitor Creative Technology is feeling the pain since the company declared war on Apple's music player market share last year.

By
Dan Nystedt, Macworld staff
, | 03 May 06

Apple competitor Creative Technology is feeling the pain since the company declared war on Apple's music player market share last year.

One year on, and Creative has returned a third quarter of losses due to restructuring charges and a sharp drop in flash memory chip prices.

The decline in flash memory prices hurt Creative's sales and prompted it to downgrade the value of its inventory of the chips, Creative said Wednesday. Flash memory chips used in music players fell in price earlier this year as producers increased production of the chips, flooding the market with them.

However, instead of banking on lower component costs, most MP3 player makers were caught with huge inventories of the chips, which decline in value as the price of the chips fall on world markets.

Creative's loss in the three months ending March 31 was $114.3 million, compared to a net profit of $14.8 million during the same period a year ago. Its sales slumped to $225.7 million from $333.8 million during the same three months last year.

The company blamed the poor showing partly on a $41.6 million one time restructuring charge, in addition to the drop in NAND flash memory prices.

"There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter," said Craig McHugh, president of US subsidiary Creative Labs, in a statement. "This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period."

"We are examining each of our product categories to determine how we can improve revenues, return gross margins to 20 per cent or higher and reduce operating expenses as we target a return to profitability in the second half of the calendar year," he explained.